The cyber-insurance market has been slow to develop, and is generally seen by both sides — potential buyers, and the insurers themselves — as partial, inadequate, and far short of its potential. An important theoretical and practical question stands in the way: under what circumstances (if any) would a government entity assist in providing financial backstops for very large losses in a ‘systemic’ cyberattack? Put differently, when and under what conditions should a government act as ‘reinsurer of last resort’ for cyber? Some have suggested that the TRIA backstop for insuring against terrorist acts could be a model for a cyber insurance backstop, but (as far as we know) this idea has not been subject to careful assessment and modeling. Other relevant questions include:
- What are the conditions under which a government backstop would be market improving? What would be some foreseeable first- and second-order effects?
- It has not taken moral hazard to introduce systemic vulnerabilities into cyber; what effect would increasing moral hazard have?
- What cannot be modeled? Or, where do you have to make heroic assumptions to model?
CLTC is seeking a UC Berkeley graduate student to conduct a next-step literature review that will look at questions such as:
- What are the elements of cyber backstop schemes already in existence or that have been proposed?
- What data exists about what reinsurers are doing in response to systemic incidents and correlated cyber risk, and why? What are the arguments being made by reinsurers? What assumptions are being made in the market about cyber reinsurers being ‘too big to fail’?
- What has been the effect of dynamic, continuously updating protective measures on the viability of the insurance market in other areas (e.g., building codes with respect to natural disasters)?
This is a paid CLTC research fellowship for the literature review. The expected timeframe is November-December 2019 and the work will be supervised by Professor Steven Weber. The fellowship comes with a $1500 stipend. There is the potential for it to become a GSR-style appointment with CLTC in spring semester, depending on the results of the literature review and funding availability.
To apply, we request a current CV/resume and a short cover letter explaining why you are interested in the project and your relevant experience. Please send application materials to cltc@berkeley.edu. If you are aware of anyone in the UC Berkeley research community who has looked at these or adjacent questions, we invite you to reach out to us as well.
